Part 26A Recognition Issues in Europe in 2021
The U.K. applied to join the Lugano Convention in April 2020, a time when the Brexit deadline was fast approaching. The convention governs the jurisdiction and the enforcement of judgments in civil and commercial matters between EU member states and Norway, Iceland and Switzerland. If Britain were allowed to join, a Part 26A restructuring would gain automatic recognition across EU member states. However the European Commission has stated that it is of the view that the U.K. should not be able to join the Lugano Convention, following Brexit.
The English court, in Gategroup’s Part 26A plan, held that the Part 26A plan falls within the remit of Article 1(1) of the EU’s Recast Insolvency Regulation (RIR), meaning it does not fall under the Recast Brussels Regulation (RBR) and, by extension, under the Lugano Convention or Hague Convention.
Prior to the Gategroup judgement, English restructuring lawyers argued that English law schemes of arrangement and Part 26A plans would be able to gain automatic recognition under either the Lugano Convention, the Hague Convention or the Rome I Regulation. Following the judgment, only the latter remains available. A company using the Part 26A plan will have to rely on Rome I, the UNCITRAL Model Law, bilateral treaties or any domestic comity regimes in each individual member state for recognition.
As the U.K. courts act as a restructuring hub for European companies, the effectiveness of the Part 26A plan throughout the EU has been compromised, and the new Dutch scheme may be well placed to attract restructurings away from London. The Dutch scheme is broadly similar in its features to the Part 26A plan; however, given that the Netherlands remains a member of the EU, the Dutch scheme falls under the remit of the RIR and will be given automatic recognition across the EU.
It is clear that the market sees a certain amount of parity between the two regimes. In a recent case, Jain International Trading BV’s (JITBV) proposed restructuring of its $200 million 7.125% senior notes due 2022 – which are guaranteed by Jain Irrigation Systems Ltd. – is structured as an exchange offer, with the proposed implementation of the transaction via either an English or Dutch scheme. The group eventually settled on the English tool, suggesting that London’s primacy as a restructuring hub is intact for now, but time will tell which forum ultimately wins out.